Tax stuff I think is interesting. It is either copied from my primary blog on forbes.com http://www.forbes.com/sites/peterjreilly/ or stuff that I did not put there because being on forbes is a good gig and they have, you know, standards. Also some guest posts.

Thursday, May 31, 2018

Lois Lerner's Old IRS Team Looking Anti-tech

Pretty much everybody is mad at Lois Lerner, but it may be time to ease up on the people who used to work for her issuing rulings on whether organizations should be tax exempt. I have a hunch that the budget cuts must have hurt them a lot in the technology area. Maybe that's not it, but I have noted a kind of anti-tech trend in their rulings. Just a trace of paranoia too as they worry about open source software aiding our enemies.

There are two recent rulings that trouble me a bit. They are PLR 201505042 and PLR 201505041. I have not had any luck penetrating the redaction, so I get to make up names for the organizations. I'm going to call them High Tech Government (HTG) and Free Software For All (FSFA). These two rulings are not the first instances I have noticed of Luddite tendencies in the IRS Exempt Organizations Determination Office, but more on that later. Let's look at the rulings.

High Tech Government

The purpose of HTG is to "... raise awareness of how technology can be employed to improve governance local, state, federal levels. We believe that transparency and the natural accountability will improve government regardless of geography, political affiliation, and level of government." It's first goal is to "relocate their politicians back to their home districts where they will perform their duties via teleconferencing, video conferencing and the Internet.” HTG would like politicians to work and live in their home districts among the people they represent instead of in N (I'm going to take a wild guess and say N is probably Washington) with lobbyists.

HTG also pushes for greater transparency

You want to educate people on how government can employ technology to be more transparent and accountable. You sponsored a panel discussion at a library to discuss T. You also plan to reach out to other organizations and provide ideas. You state that, “The next step is to make it mandatory for all states and cities to post all of their expenses online.” You are non-partisan and you do not promote the interests of any political party. You stated, “We have no intentions of lobbying lawmakers.”

Why HTG Is Not A Charity

Your primary activity is advocating for the adoption of a particular doctrine or theory. The doctrine or theory is of a nature which can become effective only by the enactment of legislation. As such, you are defined in Section 1.501(c)(3)-1(c)(3)(iv) of the regulations as an 'action' organization.
You advocate for legislative bodies to change the rules on how they operate. Because those legislative bodies would have to undertake action to put that change in effect, that action meets the definition of legislation in section 1.501(c)(3)-1(c)(3)(ii) of the regulations. Because you urge the public to propose to legislative bodies to change the rules on how they operate, you are influencing legislation also defined in section 1.501(c)(3)-1(c)(3)(ii) of the regulations.
You established that your first goal is to relocate politicians back to their home districts. The goal you established can only be attained through legislative action.

HTG argued that it had no intention of lobbying lawmakers and was not proposing any specific measures. It just wants to educate the public on the possibility of legislators working from home. That did not solve the problem.

Supporting or opposing specific legislation is not a requirement to be considered influencing legislation. In Christian Echoes National Ministry, the Court looked at the organization's continual attempts to influence legislation by appeals to the public to react to issues to conclude the organization was furthering non-exempt purposes. The Court also noted the fact that specific legislation was not mentioned does not mean that their attempts to influence public opinion were not attempts to influence legislation.

Free Software For All

I think the anit-tech bias comes through stronger in the ruling on FSFA. The purposes of FSFA are to

....make the software available for free to the public to use, change, or distribute it as Free and Open Source Software. Your activities consist of promoting the activities of an association of programmers whom develop and maintain Player. You spend eighty percent of your time promoting Player , which includes identifying and supporting important work on multimedia software across community supported projects. Player records, converts, and streams multimedia files, and related files.

I am quoting liberally from the ruling, in part because I hope someone with more tech savvy than I will be able to penetrate the redaction and identify the organization. FSFA highlighted three efforts that it believes qualify it as particularly charitable.

First, is code written to improve Player functionality for the hearing impaired. Second, is improvements to code for digitally archiving videos used by government archival agencies and nonprofit libraries. Third, by reverse engineering abandoned and obscure video formats and building support for them into the Player, you hope Player users would preserve archival footage and other media that might otherwise be lost forever. These components are written and owned by private persons. However, you have not provided any information as to how you support these purposes.

Then there is the educational aspect. The open source code is published and there is an effort to connect mentors to students.

Problems With FSFA - Aiding Our Enemies!

The exempt group had concerns about inurement since board members of FSFA were on a consultant's tab in the website touted as the world's leading experts on the software. I think that it is not unusual for a not for profit to have the effect of promoting the reputation of people involved in it, but I have to allow that there is a legitimate concern there. Here is the part that I have a problem with:

The development and distribution of software is not a public work even if published under open source or creative commons compatible licenses because software is not a facility ordinarily provided to the community at public expense. Section 1.501(c)(3)-1(d)(2) defines the term charitable to include “erecting or maintaining public buildings, monuments, or works.” This language slightly broadens the original formulation from four centuries ago. The Statute of Charitable Uses, 43 Eliz. I, c.4 (1601) recognized as charitable the 'repair of bridges, ports, havens, causeways ... and highways'. Quoted in Rev. Rul. 71-29. The regulation language also closely parallels the synthesis provided by Restatement 3rd Trusts § 28 which defines charitable to include government or municipal purposes such as the “construction or maintenance of public buildings, bridges, streets, highways or other public facilities...” The charitable purpose underlying public works is to provide the “community with facilities ... ordinarily provided at public expense.”

In today's world, I think that the "development and distribution of software" can in fact be a public work. Anybody ever heard of the internet? Hello! Think about the Irish monks who preserved Western civilization by copying over manuscripts. These guys who are recovering video formats that have become unreadable by existing equipment play a similar role to the monks. That a high percentage of the lost videos might be of cats playing with babies or other matters best forgotten does not change the principle.

The analysis of why software cannot be a public facility goes on and one and I think it is all wrong particularly as it finally descends into jingoism.

First, software is not a facility. It is not a lake, park, or like any other public work described in Rev. Rul. Rul. 66-359, Rev. Rul. 70-186, or any of the many other tax and trust authorities we reviewed. Software is intangible, and by its very nature software is not fixed; its perpetual existence and access by the public relies upon private persons hosting the code on private servers, and anyone may alter the Player. Second, software is not “ordinarily provided at public expense.” It is not something ordinarily constructed by public bodies for use by members of the public. Third, a public work cannot be owned by private persons. The Player code is owned by private persons. Fourth, even if the Player were otherwise a public work, the benefits of the program flow to individuals who use it to watch movies and video for nonpublic purposes. Anyone can appropriate it or portions of its code for nonpublic uses, which you encourage. We described above how commercial companies use the Player to conduct their businesses. We have not found any authority that authorizes a member of the public to use a public work for nonpublic purposes. Finally, public works must serve a community. You point out that the open source licensing ensures the Player serves the world.

We have not found any authority for the proposition that the world is a community within the meaning of § 501(c)(3). We think that proposition untenable because it would include the governments of nations whom are our enemies. Aiding our enemies does not further an exempt purpose. (Emphasis added)

Last I checked there was no declaration of war in effect, so what are these "governments of nations whom are our enemies" and I may be crazy, but I think as the world gets smaller and smaller we need to think of it as a community, but that's just me maybe.

Back in September I wrote about a pair ruling in which the EO group turned down a sorority that met on-line for 501(c)(7) status and an organization that provided free wi-fi for 501(c)(3) status. I attributed both those rulings to meatspace prejudice, but now I'm thinking there might be a full blown Luddite cult operating in there. We'll see.

A common contribution is essential for the maintenance of the public forces and for the cost of administration. This should be equitably distributed among all the citizens in proportion to their means.

Declaration of the Rights of Man

Over and over again courts have said that there is nothing sinister in so arranging one's affairs as to keep taxes as low as possible. Everybody does so, rich or poor; and all do right, for nobody owes any public duty to pay more than the law demands: taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant.